ECONOMIC SURVEY – CASE FOR UNIVERSAL BASIC INCOME

ECONOMIC SURVEY 2017 CHAPTER WISE ANALYSIS

Universal Basic Income: A Conversation With and Within the Mahatma

Economic Survey 2017 also presents a case for UBI i.e. Universal Basic Income. Survey puts the argument both for and against UBI and in the end concludes on an optimistic note about how Mahatma Gandhi may have have endorsed it.

What is UBI?

A universal basic income is, like many rights, unconditional and universal: it requires that every person should have a right to a basic income to cover their needs, just by virtue of being citizens.

UBI has three components: universality, unconditionality, and agency (by providing support in the form of cash transfers to respect, not dictate, recipients’ choices).

Will the UBI be Universal in true sense?

The survey assumes that in practice any program cannot strive for strict universality, so a target quasi-universality rate of 75 percent is set (this is later referred to as de facto UBI).

Is the time right for introduction of UBI?

The time has come to think of UBI for a number of reasons:

Social Justice – UBI will promote ideals of social justice and equality.

Poverty Reduction – by better targeting of beneficiaries and delinking employment from subsistence.

Employment – UBI will allow for more non-exploitative bargaining since individuals will no longer be forced to accept any working conditions, just so that they can subsist.

Administrative Efficiency – When the trinity of Jan-Dhan, Aadhaar and Mobile (popularly referred to as JAM) is fully adopted the time would be ripe for a mode of delivery that is administratively more efficient.

Extract from Economic Survey 2017 – For & Against UBI

Countering the Arguments against UBI:

Argument 1: UBI reduces the incentive to work – a worldview encapsulated in the quote by Gandhiji.

Counter: Levels at which universal basic income are likely to be pegged are going to be minimal guarantees at best. it truly is a diminution of human dignity to suppose that the only motivation for which people work is necessity.

Argument 2: Should income be detached from employment?

Counter: Any society where any form of inheritance or accepting non-work related income (as in case of rich) is allowed, already detaches income from employment.

Argument 3: Concerns out of reciprocity i.e. income should reciprocate the contribution of people to society.

Counter: The short answer is that individuals as a matter of fact will in most cases contribute to society. In the current social structure, for example, homemaking contributions of women are largely unacknowledged economically but they do contribute.

How the things are moving presently and how UBI can be an improvment?

Presently, there are number of schemes and programs run by the government. The Budget for 2016-17 indicates that there are about 950 central sector and centrally sponsored sub-schemes in India accounting for about 5 percent of the GDP by budget allocation. If the states were included, the number of schemes would be orders of magnitude larger.

Even leaving aside their effectiveness, considerable gains could be achieved in terms of bureaucratic costs and time by replacing many of these schemes with a UBI. But the most important question relates to the effectiveness of existing programme in helping the poorest, which is analysed as follows:

Misallocation of resources across districts – Misallocation captures the fact that the poorest areas of the country often obtain a lower share of government resources when compared to their richer counterparts. Misallocation has repercussions for targeting of resources to the poor. The UBI, by design, should effectively tackle issues related to misallocation. Conceptually, a UBI reduces out of system leakage because transfers are directed straight to the beneficiaries’ bank accounts.

Last mile concerns remain, however. Beneficiaries still need to access their bank accounts.

Poor households (in fact even many of those above poverty) are often faced with various shocks such as bad health and job loss, aggregate shocks such as natural disasters (crop loss, water borne diseases, loss of property, cyclones, drought, etc.) and political risk.In the face of such prominence of shocks, a guaranteed basic income can provide a basic form of insurance.

Additionally, there are potential psychological benefits to be made from having a UBI. The World Development Report (2015) argues that individuals living in poverty have a preoccupation with daily hassles and this results in a depletion of cognitive resources. A natural consequence of lower cognitive bandwidth is bad decision-making in the face of poverty, begetting more poverty. An assured income could relieve mental space that was used to meet basic daily consumption needs.

Financial scenario vis-a-vis UBI:

Financial inclusion in India has progressed substantially since the PradhanMantri Jan DhanYojana (PMJDY). Despite tremendous improvements in banking coverage, there is still some way to go before financial access to all poor is achieved. On the payments side, improving financial inclusion is both a demand and supply side challenge. While on the demand side, there is a need for behavioral change on the part of account holders so that they use their accounts more often, on the supply side, banks need to find it profitable to provide access to banking services.

If UBI is provided to individuals, there will be an endogenous increase in the volume of transactions and revenue from government transfers along with a corresponding decrease in per unit fixed costs, thereby increasing the profitability of Banking Correspondents and expanding their coverage.

What will be the cost of UBI on economy?

The economy-wide cost of UBI will be 4.9 percent of GDP.

Will determining UBI be just a one-time exercise?

The process of determining a UBI amount is not a one-time exercise: as the UBI is a cash transfer, its ‘real’ value tends to be determined by inflation in the economy. Over time, the same amount of cash transfer may not buy the same amount of goods. It is, therefore, important to index it to prices such that the amount gets revised periodically.

What can be different approaches of gradually moving towards UBI?

Here, below are different approaches of gradually adopting a UBI.

Rather than provide a UBI in addition to current schemes, it may be useful to start off by offering UBI as a choice to beneficiaries of existing programs. However with this approach, disadvantages of UBI would continue and running both the schemes would be administratively cumbersome.

Another approach is UBI for women. Giving money to women also improves the bargaining power of women within households. The UBI could also factor in children in a household to provide a higher amount to women.

Another approach is to phase in a UBI for certain vulnerable groups – widows, pregnant mothers, the old and the infirm – first. However, a challenge may be that these groups of persons are less likely to have access to bank accounts and are further away from the JAM frontier.

A yet another approach may be to introduce UBI in urban areas first, as these areas are less likely to suffer from poor banking infrastructure and lack of individuals with bank accounts.

Conclusion

If, as appears to be the case, that thinkers on both the extreme left and right have all become its votaries, then UBI is a powerful idea whose time even if not ripe for implementation is ripe for serious discussion. The Mahatma as the embodiment of universal moral conscience would have seen the possibility of UBI in achieving the outcomes he so deeply cared about and fought for all his life. Recognizing the difficulty of exit, the Mahatma as astute political observer would have anxieties about UBI as being just another add-on government programme. But on balance he may have given the go-ahead to the UBI.

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